Committee of Public Accounts

NINETEENTH REPORT: THE PFI CONTRACT FOR THE REDEVELOPMENT OF WEST MIDDLESEX UNIVERSITY HOSPITAL (HC 155)

Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today that departments must resist wasting effort to make PFI deals appear marginally cheaper than public provision, and should seek to reduce the cost of professional advice.

Mr Leigh was speaking as the Committee published its 19th Report of this Session, which examined whether the analysis of the Private Finance Initiative (PFI) deal for the redevelopment of West Middlesex University Hospital had been correctly prepared and interpreted, and what lessons could be drawn for the NHS and more widely for negotiating future PFI deals. The 35 year, £120 million contract was let in 2001 by the West Middlesex University Hospital NHS Trust (the Trust) to a private sector consortium called Bywest to redevelop the Trust's site at Isleworth, West London and then to provide ongoing maintenance and facilities services.

The Committee found that spurious precision in public sector comparators is unproductive. When using a public sector comparator to aid decision-making on PFI deals, public authorities need to recognise the degree of uncertainty inherent in such comparators. In this case, the Trust's advisers strove to make slight adjustments to the calculations, well within the range of error inherent in costing a 35 year project, to ensure that the PFI cost appeared marginally cheaper than the public sector comparator. Yet this work added nothing to the quality of the Trust's decision-making on the deal.

Departments should base decisions on PFI deals on a realistic and comprehensive analysis of costs, benefits and risks. Instead of placing undue weight on the public sector comparator, the Trust should have attached importance in its assessment to wider factors such as the advantages of passing appropriate risk to the private sector and the potential risks involved in a contractually binding 35 year partnership.

There is scope for action by the NHS to reduce PFI advisory costs. This deal was only the latest in a long series of hospital PFI deals, yet the Trust spent £2.3 million on advisers on this deal, virtually the same amount as those incurred by the Dartford & Gravesham NHS Trust in letting the first PFI hospital contract four years earlier. To counter the risk that the decentralised approach of the NHS to negotiating PFI deals might lead to reinventing the wheel, the NHS should establish a database of what advice on PFI has already been commissioned by NHS bodies. Where, as in this case, useful innovations are made, such as the use of a new standard NHS PFI contract, a streamlined bidding process and a price commitment by the preferred bidder, the NHS should promptly disseminate the lessons learned.

Mr Leigh said today:

"Important innovations were pioneered on this deal, including the use of a new standard NHS PFI contract and a price commitment by the preferred bidder, and these should be disseminated promptly across the NHS.

But this deal also reinforces several lessons which are still to be learnt. In particular, it is important not to waste efforts on tweaking the public sector comparator to ensure the PFI appears marginally cheaper when this adds nothing to the quality of decision-making. These projects necessarily involve a great deal of professional advice but departments must seek to reduce these costs, especially where similar advice is sought on subsequent deals."